“Money, I don’t know where it goes! On payday I have money, then, far too quickly, it’s just… GONE! I feel trapped in this endless cycle where I can’t get ahead!” I can’t tell you the number of times I’ve had this conversation, or something very similar, with people around me. Don’t worry, I’m not the one who has no idea where my money goes, I’m the one they’re telling that to.
In my experience and reading, it seems to me like there are five main factors keeping us from being successful money managers. But don’t get discouraged! I also have five fixes, one for each problem, to help you straighten out your money situation.
Problem 1: We don’t track where our money is going. Unless you have a system in place that works for you, you can’t tell why you aren’t reaching your financial goals. As the saying goes, “we can’t control what we don’t know”.
Solution 1: Get a free spending tracker app on your phone. I use “Spending Tracker” which is free on iOS and Android, but there are others. It takes 30 seconds to enter all your purchases in the day and put them in their proper category. Once you have this information, you can make better choices about where you want your money to go. It also helps identify trends that you wouldn’t spot otherwise, like when I realized my car was my greatest expense last year! If you want something that tracks multiple accounts across different currencies, bank accounts, countries, or brokerages, check out my review of Pocketsmith.
Problem 2: Our psychology! Our brains are conspiring against us to keep us living paycheck to paycheck, never gaining ground on our goals. When we make a purchase, our brains send a spike of dopamine into our systems, leading us to feel a temporary jolt of happiness. This quickly fades, leaving us wanting more: more purchases, more dopamine, less money. And because there is ALWAYS more stuff to buy, thanks to the marvel of modern capitalism, we can never really get enough.
Solution 2: Do free fun stuff. When we do stuff we find fun, we get that same dopamine spike as when we make purchases. If we’re able to do fun stuff that’s free, then we can start to break the connection in our minds between spending money and happiness. Go find free activities in your community. It could be a hike, playing board games, yoga in the park, concerts in public spaces, or really anything that matches with your own interests. Go have fun for free!
Problem 3: Advertising WORKS! We live in a world drowning in advertisements clamoring for our attention. It is so omnipresent we don’t even register it or its effects on how we consume and act. Before we know it, we’ve spent far more money on things we suddenly NEED to have, all because of advertising. This can blow our budgets out of the water.
Solution 3: Stop impulse buying. My system for this is to wait three days from when I first feel I have to get something. If I still feel strongly that I need whatever it is after 3 days, I will shop around and see if I can get it used first. If I can’t, I’ll buy it new, but try to get it cheaper, like online. I find that giving myself that three day buffer lets me decide if it’s something I really need, and usually, it’s not.
Problem 4: We tend to admire people who own a ton of luxury goods like cars, boats, and high fashion clothing. There’s a reason it’s “Keeping Up With The Kardashians” and not “Keeping Up With The Dalai Lama”, because we all dream about what it would be like to live that crazy life of only the best stuff and experiences. This makes us spend WAY too much trying to imitate these icons, especially here in the UAE.
Solution 4: Re-align our thinking so that we realize those people are chained to jobs in order to have enough money to buy all that expensive stuff. Once we get good at managing money and start reaching our financial goals and lowering our spending, we can’t be trapped in jobs we hate. We can just leave. That freedom is worth more than any fancy pair of shoes or overly expensive luxury car.
Problem 5: We think investing is too complicated. There’s an infinite number of ways to invest, and it feels intimidating to pick the right one so we grow our wealth and don’t lose it in bad investments. Most “financial advisers” also come up with and sell very complicated products with a ton of fine print so we feel we should leave our money in their “capable” hands. Sadly, a lot of those products are made intentionally confusing so that investing stays mysterious and we keep giving our paychecks over to these “professionals”.
Solution 5: Learn about index fund investing. It’s very possible to set up simple investments for yourself that will beat 98% of stock picking professionals. Even Warren Buffet, the greatest investor alive, recommends people to just buy index funds and forget it. Managing our money wisely, spending less than we make and investing the difference productively, can allow us freedom in our lives to pursue our passions.
When we can break the chains that tie us to jobs we hate and give ourselves 8-10 hours a day back to pursue happiness, we can improve not only our lives, but those of our loved ones and the wider world around us. We can do the work to determine what it is that makes us feel alive and passionate, not just what we need to do to survive and get a paycheck. Isn’t that how you’d like to live?
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